Monetary Cranks Delay Reform in Cranked-Up Welfare States

To be frank, the ECB will be making European societies more krank not less. Frankfurter Allgemeine’s comments on news of the ECB’s monetary financing of overburdened welfare states was in tune with reactions of the quality German press. It was angry. It said the ECB’s decision to begin buying government debt of troubled eurozone countries effectively demolishes the wall between monetary and fiscal policy.

Jens Weidmann -- president of the German central bank -- has long feared the financing of peripheral debt will lead to Germany becoming Europeanised rather than the other way around. When central banks finance government deficits with the printing press -- the Bundesbank thinks the ECB bond-buying comes close to doing that -- it will be “addictive”.

The longstanding concern in Germany (accepted among right-thinking economists even in Spain and Italy) is that -- in the words of Philipp Rösler -- “If you take away the interest rate pressure on states, you take away pressure for them to reform".

At an award ceremony for Mario Draghi on the day of the ECB press conference, Mr. Schäuble, Germany’s finance minister, reiterated his scepticism about activist monetary policy -- “If we start resolving problems of financial policy through the means of monetary policy, we will have a problem”. Instead, “financial and economic stability” is the key to renewed economic growth. Clearly no patience for monetary cranks.